Gimme A Break
Here are some tips for winning the annual battle with the IRS
April 15 is sneaking up. But don't be distracted by the political debate over tax cuts and a proposed revamping of retirement and other savings plans. At best, those will apply to income earned this year and thereafter. For now, there's still a chance to take advantage of already enacted tax cuts, indexing for inflation, and new provisions that could shave a few dollars off this year's debt to Uncle Sam, now due in six weeks.
As always, the demons of complexity continue to run amok. A new deduction for college expenses can ease the strain of tuition, but it adds to the confusing mix of breaks for education. On the other hand, there is a new touch of simplicity for many investors and savers. Only those who report over $1,500 of interest or dividends will have to specifically list each item on a separate form. The old threshold, unchanged since 1974, was $400.
Even today's modest inflation helps taxpayers. The standard deduction for couples who don't itemize inches up by $250 to $7,850, and exemptions for dependents are $3,000, up $100. The tax cut of 2001 brings a new top rate of 38.6 percent for 2002, replacing the old ceiling of 39.1 percent, and a new bottom rate of 10 percent applies to the first $6,000 of income for single filers and $12,000 for couples who file a joint return.
Home sweet home. The barriers to some benefits have been lowered. New IRS rules, for example, make it easier to escape tax when forced to sell your home soon after moving in. As before, people who sold a home in which they lived for at least two years can escape tax on $250,000 of profit--$500,000 for couples. Under a new clarification of the rules, you can duck all or most tax even if you moved before two years if the new address was necessitated by a job change--meaning your new place of work would have added at least 50 miles each way to your commute. Other possible exceptions: divorce or separation, being fired, a big drop in income after taking lower-paid work, moving to care for a relative, and even the addition of twins or triplets to your family.
Small new or expanded breaks can be worth pursuing. Teachers--kindergarten through high school--who dig into their pockets to buy classroom supplies now can deduct, whether they itemize or not, up to $250 of the outlays. Self-employed people who buy health insurance can save a few more bucks by generally deducting 70 percent of the cost. That's up from 60 percent for 2001. For 2003, the deduction will be 100 percent.
Last year's economic stimulus legislation provides an enhanced deduction to people who bought a car post-9/11 for business use. Their deduction for the first year of depreciation can now be as much as $7,660, up from $3,060 before the act. Missed out for 2002? This bonus will also apply to cars bought in 2003. People who bought on September 11 or later in 2001 can benefit by filing an amended 2001 return to claim the bonus depreciation.
advertisement
